Even Uber Couldn’t Bridge the China Divide

Travis Kalanick, the co-founder and chief executive of the ride-hailing giant Uber, often defended his eagerness to risk billions on winning the Chinese market with a simple question: If you have a chance to become Amazon and Alibaba at the same time, why not try?

The implication was simple. Over the last couple of decades, Amazon, Facebook, Google and other American technology giants have each followed a similar script for world domination. Like an imperial armada rolling out from North America’s West Coast, these companies would try to establish beachheads on every other continent.

But when American giants tried to enter the waters of China, the world’s largest internet market, the armada invariably ran aground.

Plagued by opaque and ever-shifting regulations and a culturally abstruse way of doing business, American companies fell to a series of local giants. Instead of Google, Baidu. Instead of Facebook, WeChat, owned by the giant Tencent. And instead of Amazon, Alibaba.

That has left us with a divide: Today, there is the Chinese internet, and there is the internet of the rest of the world. A network seen in its early days as a tool to foster financial and political unity across a fragmented planet has irrevocably cleaved into two completely separate spheres.

Mr. Kalanick, a famously competitive and aggressive entrepreneur, had apparently studied these risks and seemed determined to bridge that gulf. He would try to take on China not as an afterthought, but as a central mission of his fledgling company. He would risk billions and spend a great deal of time in China to figure out the secrets of winning there. The goal seemed lofty, but the opportunity, after all, was eye-popping: Amazon has a market value of $365 billion, and Alibaba is worth about $200 billion. The ride-hailing business might one day grow to be as valuable as e-commerce, if not larger — and wouldn’t it be fantastic if you could own it all, everywhere?

Well, you can’t. The announcement on Monday that Uber will sell its Chinese operations to its rival Didi Chuxing, effectively ceding China to the homegrown favorite, cements an emerging global state of play: A kind of Chinese-American Cold War over the internet.

Entrepreneurs across the globe can choose to win in China or the rest of the world. You can be Alibaba or you can be Amazon. You can be Uber or you can be Didi. But you can’t be both. Given the rising Chinese market and increasing tension over the role of American tech firms in the rest of the globe, the gulf between the two sides promises to become one of the most important factors in determining the shape of global tech innovation.

How exactly might the war play out? In some ways, being at the mercy of two poles of internet leadership could be good for citizens of planet Earth. In emerging markets like India, the Middle East and parts of Africa and South America, the giants of China and the United States are increasingly investing billions to compete for local customers in e-commerce, social networking, ride sharing and other markets.

“Amazon is increasingly making its own branded products, taking on Procter & Gamble and others, and also getting into the logistics business, and shipping, and everything else,” Mr. Clark said. “But Alibaba is a marketplace that doesn’t hold inventory and describes themselves as helping local merchants — so maybe there’s some argument that Alibaba could serve as a counter globally to Amazon.”

But Uber’s deal with Didi — in which Uber will take an 18 percent stake in the combined company, which is certain to become the monopolistic player in the Chinese ride-hailing market — points to another potential outcome: A series of accommodationist deals in which giants cede large parts of the world to one another, pragmatically carving out their spheres of influence like players in The Great Game.

However the global order shakes out, each side’s home territory seems safe from invasion by the other. Uber’s retreat in China was preceded by a parade of failures by earlier American tech firms. Some fell short for obvious political reasons — companies that traffic in information, like Google, Facebook and Twitter, were essentially stymied from the start by the Chinese censorship regime. Others, like Amazon and eBay, failed to appreciate some of the differences in how business got done in China, especially the importance of personal connections.

“The barrels that will be thrown at you when you’re trying to do business in China will just never stop,” said Mark Natkin, the managing director of Marbridge Consulting, an advisory firm based in Beijing. “You’ll constantly be above one barrel or recovering from jumping one, and as you’re dusting yourself off you look down the road and here comes the next one.”

Compared with previous failures, Uber seemed to do everything right in China. It set up a separate company, Uber China, which had a buy-in from local investors, including from a local giant, Baidu. It hired many local experts, and worked closely with the national government to foster friendly relations.

Insiders say Mr. Kalanick was also personally invested in the deal. He visited China eight times in the last year and a half, and became something of a tech star in the Chinese media.

Publicly Mr. Kalanick had insisted he was fighting for total victory in China. But he must have known that Uber would always struggle to achieve dominance, given the emerging centrality of ride-sharing to the future of infrastructure in China. Still, even if he failed to win everything in China, investing early in the country seemed too big to skip.

“The ride-sharing opportunity in China is basically as big as the rest of the world combined, if not bigger,” said Ben Thompson, an analyst based in Taiwan who writes the tech newsletter Stratechery. “For Uber, China was basically frosting on the cake.”

For now, it’s especially delicious frosting. The $2 billion Uber spent tackling China is now worth about $7 billion in the new merged entity; if Didi does become one of China’s largest tech companies, the value of Uber’s stake in China could rise geometrically, making the firm much more attractive in a potential initial public offering. Pulling out of China also frees up Uber to invest more in other markets — India and Indonesia are big targets — as well as expand its expertise in core technological initiatives like mapping data and self-driving cars.

But if spending big to tackle China ultimately works out for Uber, it will be an anomaly, and certainly not a model for other American tech giants.

“The ride-sharing market is one the few markets where the upside is big enough to justify going in,” Mr. Thompson said. “For most other companies, going into China is still going to be nothing but pain.”

Email: farhad.manjoo@nytimes.com; Twitter: @fmanjoo

A version of this article appears in print on August 2, 2016, on Page A1 of the New York edition with the headline: Even Uber Couldn’t Bridge the China Divide . Order Reprints|Today's Paper|Subscribe